Wednesday, August 26, 2009

New home sales are up over 30% from their lows, in yet another sign that the economy is improving. This, in combination with the more than doubling in the price of major homebuilders stocks from last year's low, constitutes strong evidence that we have seen the bottom in the housing market. All this activity also suggests that the combination of sharply lower prices and relatively low mortgage rates has created the conditions necessary to clear the housing market. Market forces have fixed the housing problem, and we can now move forward with more positive changes.

On the other hand - The following excerpt describes "existing" home sales and the internal dynamics. The conclusion is so unbelievable that, well, it's hard to believe. I looked, but couldn't find many details about the survey - perhaps it's flawed. The article also points out that the first time buyers credit is responsible for a lot of the sales (presumably new homes too.)

http://www.businessinsider.com/home-sales-surge-but-2009-8

A survey conducted in June of 1,500 real-estate agents sponsored by the trade publication Inside Mortgage Finance found that 36% of all sales involve "nondistressed" properties.

Of the nondistressed sales, only 31% were what the survey described as "unforced or optional." The rest were sales by homeowners in some kind of financial or personal crisis.

"Think about that for a minute," John Mauldin of Millennium Wave Advisors wrote this week. "Two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage." And only a third of the remaining one-third -- roughly 10% of overall sales -- comes from "something we could call a normal selling process."

Never stopped to read your posts, but did today.I am one beach north of you (lost Winds) and I have to say your header photo is one of the better ones I have seen. I am a 30 year veteran of the mortgage industry in senior management. I would love to collaborate with you if the opportunity arises.

Jay: Here's how I read the tea leaves: The 10-year Treasury yield at 3.4% (and TBT correspondingly low), the market is telling us that recovery is still a very uncertain prospect. Yes, the equity market has rallied significantly, but it has gone from an expectation of a double-deep depression to now one of maybe a modest recovery. I don't see the equity market as over-priced or overly exuberant at all. Credit spreads are still at levels that in the past have corresponded to recessions. The Vix is still unusually high. So everything is priced to maybe a modest recovery with a big question mark of doubt.

I think Treasury yields are still in an uptrend, and this is just one of those inevitable setbacks that prove to be temporary.

Jeff: I need to give credit for the photo to my son in law. It was one of those blustery days right after a storm a few years ago, and he captured it perfectly with my Canon hand-held camera. He prepared a couple for me. I've been using this one since inception, since its appropriate given how "stormy" the markets have been. I'll probably use a more peaceful picture at some point once it's clear the economy is out of the woods.

We have walked past your house, or very close to it, many times. The coastal trail is really great.